Customs, Excise and Gold Tribunal - Delhi
Auto Piston Manufacturing Co. Ltd. vs Collector Of C. Ex. on 1 April, 1992
Equivalent citations: 1992(60)ELT342(TRI-DEL)
ORDER Jyoti Balasundaram, Member (J)
1. In these appeals the question that arises for consideration is the eligibility or otherwise of the goods manufactured by the appellants to MODVAT credit under Rule 57-I of the Central Excise Rules in respect of aluminium ingots (inputs in terms of Order No. 22/5/86-TRU dated 7-4-1986 issued by the Government of India under the second proviso to Rule 57G(2) and Government of India Order No. 332/30/87-TRU dated 2-11-1987.
Appeal No. 58/89-NRB - Details Show cause notice dated : 11-3-1988 Period: 9-11-1987 to 28-2-1988 Demand: Rs. 1,61,000/- Appeal No. 59/89-NRB (a) Show cause notice dated 17-12-1987 Period 1-6-1986 to 18-5-1987 Demand Rs. 4,73,782.50 (b) Show cause notice dated 25-11-1987 Period 10-6-1987 to 8-10-1987 Demand Rs. 92,000/-
2. The appellants manufacture aluminium pistons, pins and rings falling under Heading 8409 and 8714 which are chargeable to duty on an ad valorem basis. The products are manufactured out of aluminium alloy ingots falling under Heading 76.01. The aluminium pistons and aluminium ingots are specified final products and inputs as per Notification No. 177/86-C.E. and accordingly the appellants were availing credit of duty on inputs received in his factory and utilised in the manufacture of final product after filing requisite declaration. As per Rule 57G of the Central Excise Rules a manufacturer of final products may take credit of duty paid on the inputs received by him provided they are accompanied by gate pass or other specified documents evidencing duty payment. The Rule also provides further that the Central Government, having regard to the period that has elapsed since excise duty was imposed on any inputs, direct that with effect from a specified date stocks of the said inputs in India excepting such stocks lying in a factory customs area or a warehouse as are clearly recognised as non-duty paid may be deemed to be duty paid and credit of duty on the said inputs may be allowed without producing documents evidencing payment of duty. The Central Government issued order F. No. B-22/5/86-TRU dated 7-4-1986 (under Rule 57G) under which deemed credit of Rs. 2300/- per tonne was allowed on aluminium alloy ingots subject to certain conditions being fulfilled; the order stipulated that no credit shall be allowed :
(i) if ...
(ii) if such inputs are clearly recognisable as being non-duty paid or charged to nil rate of duty or
(iii) if ...
[(i) and (iii) are not relevant] By order F. No. 332/30/87/TRU dated 2-11-1987 issued under Rule 57G(2) the facility of deemed MODVAT on unwrought aluminium in any form was continued but the condition in the earlier order of April 1986 was modified and changed as hereunder; no such credit shall, however, be allowed,
(i) if ...
(ii) if such inputs are clearly recognisable as non-duty paid.
3. The charge against the appellants is that the inputs received by them and used in the manufacture of final products were exempted from payment of duty and as such were clearly recognisable as non-duty paid or charged to nil rate of duty and, therefore, deemed credit was not available in terms of the Government orders (supra).
4. We have heard Smt. Archana Vadhwa, Learned Counsel and Shri S.K. Shar-ma, learned DR.
5. The first contention of the learned Counsel is that the demand for Rs. 4,73,782.50 (covered by show cause notice of 17-12-1987 and subject matter of appeal No. E/59/89-NRB is barred by limitation as it has been raised after a period of six months from the relevant date. The appellants were availing MODVAT credit of duty under the deeming provision after filing necessary declaration under Rule 57G and were filing copies of the prescribed statutory records for availing MODVAT credit to the Jurisdic-tional Range Superintendent along with monthly RT 12 returns and copies of sale invoice of the person from whom the inputs were cleared. The RT 12 returns were duly assessed after allowing the deemed credit taken by the appellants without raising any objection. We see great force in the contention of the appellants that the fact of non-declaration by the appellants as to whether they have received the inputs from the manufacturing units after being cleared at Nil rate of duty will not amount to suppression. The Collector (Appeals) has discussed this aspect of alleged suppression in paragraph 5 of the impugned order by holding that since the appellants suppressed the fact that the inputs received by them were actually subject to nil duty the 5 year period prescribed under the proviso to Section 11A would be applicable. In view of a subsequent finding on merits that the inputs cannot be treated as charged to nil rate of duty, the question of suppression does not arise. On other aspect viz. whether the provisions of Section 11A apply to a demand under Rule 57-I prior to its amendment we find that this issue has been settled by the Hon'ble Karnataka High Court in the case of Tungabadhra Steel Products v. Superintendent of Central Excise and Anr. (1991 33 ECC 140 Kar.). The discussion on this point is contained in paragraphs 15, 16 and 17 of the above judgment which are reproduced below:
"At the outset, it must be noticed that the Department appears to have accepted the decisions of the CEGAT rendered in a number of cases referred to earlier, which support the contentions of the petitioners. From the very fact that the Central Government decided to amend the rule itself, which was done with effect from 6-10-1988 by inserting limitation in Rule 57-I, it can be presumed that the intention of the Legislature was to amend the rule to bring it in conformity with the spirit and scope of Section 11 A. The effect of the subsequent amendment to Rule 57-I is a point in favour of the petitioner in the interpretation of Rule 57-I, before amendment, as contended for by the petitioner.
Under the scheme of Modvat credit in Chapter 5AA of the Rules, the as-sessee gets a rebate on the duty payable on the final products to the extent the duty is paid on inputs. This in addition to the proforma credit allowed under Rule 56A. Under Rule 56A, the proforma credit of the duty paid on the inputs, material or component parts, is allowed provided the finished excisable goods and the material or component parts are eligible to duty under the same heading or subheading of the Schedule to the Central Excises and Salt Act. The additional benefit allowed under the MODVAT scheme is that such credit and the duty paid on inputs is allowed, whether the finished product and the inputs availed are under the same heading or not. Thus, under both the schemes, viz. proforma credit and the MODVAT credit, the benefit or the rebate the manufacturer gets is the rebate in the duty payable on the manufactured goods under Section 3 of the Central Excises Act.
Therefore, having regard to the scheme of MODVAT credit, if a proper officer finds that Modvat credit had been wrongly availed of or utilised in an irregular manner, he takes steps to recover the duty which was legitimately payable by the assessee under the Act in accordance with the procedure prescribed under the relevant rules. The scheme provides for debiting the credit availed of to the PLA account, which is a self-removal facility provided under the scheme of the modvat credit. This credit will have to be reversed in accordance with law resulting in recovery of the duty that becomes payable as a consequence of the reversal. Under Rule 57E, the duty in respect of which credit is allowed, is adjusted in the credit account maintained by the assessee as prescribed under Rule 57G. Under 57G(4), the manufacturer of final product is required to submit monthly return indicating the particular inputs received during the month and the amount of duty taken as credit along with extracts of Parts I and II of Form RG 23-A, and, also make available the documents evidencing the payment of duty on the inputs taken, to the proper officer. Therefore, having regard to the scheme, any reversal of the credit availed of by the manufacturer wrongly, results in withdrawal of the allowance of the credit and the proper officer proceeds to recover the amount equivalent to the disallowance in the manner prescribed in Rule 57-I."
6. In view of the above we hold that the demand under Rule 57-I can only be raised subject to the time limit prescribed under Section 11A. Therefore, the demand of Rs. 4,73,782.50 forming part of the subject matter in E/59/89-NRB is barred by limitation.
7. On the merits of the case, the order dated 7-4-1986, has been issued by the Government of India under proviso 2 to Rule 57G to remove the difficulties of assessees who purchase their inputs either from the market or from secondary manufacturers and the intention is to reduce cascading effect of payment of duty. The benefit of the deemed credit cannot be extended to cases where the inputs are clearly recognisable as non-duty paid or charged to nil rate of duty. The expression charged to nil rate of duty has been construed by the Tribunal in several decisions notably in the case of Arun Auto Spring Manufacturing Co. v. Collector of Central Excise reported in 1990 (49) E.L.T. 284, wherein the Bench has held as follows:
'The words 'charged to nil rate of duty' appear to have a special significance. Section 3 of the Central Excises and Salt Act is the charging section. Thereunder, it is laid down that duty of such excise on all excisable goods shall be levied and collected at the rates set forth in the First Schedule. Hence, levy and collection on excisable goods is to be done as per the rates set forth in the First Schedule. Where duty on any goods is leviable at nil rate as per the Schedule, such goods may be construed to be the goods charged to nil rate of duty. Where goods are charged to rates specified as set out in the Schedule and they are exempted by way of an exemption notification under Rule 8(1) of the Central Excise Rules, they Could be construed as goods subject to the rates specified in the First Schedule but are exempted and they cannot be construed as goods 'charged to nil rate of duty'. Hence in our view, the words 'charged to nil rate of duty referred to in the order of the Government of India dated 7-4-1986, have a special connotation and meaning and used in the context of the 'rate' of duty as specified in the First Schedule. This view of ours is also strengthened by the fact that the Government of India in its later order dated 20-5-1988 specifically referred to goods wholly exempted from duty as not eligible for deemed modvat credit. The relevant portion of the order of the Government of India No. 342/10/88-TRU dated 2-5-1988 is reproduced below:
No such credit shall, however, be allowed.
...
(ii) if such inputs are clearly recognisable as being non-duty paid or wholly exempt from duty or charged to nil rate of duty."
This later order of the Government of India itself brings out the distinction between the goods, wholly exempted from duty vis-a-vis those goods charged to nil rate of duty. In view of the fact that the inputs in respect of which deemed credit is sought to be denied during the period 1986-87 in terms of Government of India's order dated 7-4-1986, it has to be construed that the said order does not bar the deemed credit in respect of inputs wholly exempted from duty. It is not proper to construe the provisions made in the subsequent order dated 20-5-1988 that too issued in supersession of the earlier orders as holding the ground during the period 1986-87, when the deemed credit is to be construed only in terms of order dated 7-4-1986. We are also unable to take a view that the subsequent order could be a clarification of the earlier order, since the earlier orders have been superseded. In this view of the matter, we hold that even if the goods have been received from a manufacturer availing of exemption under Notification No. 208/83, deemed credit in terms of the Government of India's order dated 7-4-1986 would be available".
8. This order of the Tribunal has been followed subsequently in the case of Collector of Central Excise, Chandigarh v. Mittal Metal Industries and Ors. [Order No. A-538 to 542/90-NRB dated 20-12-1990 reported in 1991 (54) E.L.T. 290]. In this case the Department seeks to rely upon the certificate from the Jurisdictional Range Officer to the effect that M/s. Bafna Trading Co. (who supplied aluminium ingots to the appellants) were manufacturing aluminium alloy ingots out of aluminium scrap purchased from outside and have submitted a declaration claiming exemption from licensing control under Notification 111/78 read with Notification 183/84 dated 1-8-1984. The Department has produced this certificate to show that the aluminium ingots received from M/s. Bafna were cleared without payment of duty as the same were exempted under Notification 183/84, after fulfilling the conditions stipulated therein. To our mind this certificate does not serve that purpose. M/s. Bafna Trading Co. being a non-licensing company, the inputs purchased by the appellants are to be treated as having been purchased from the bazaar. The deemed credit cannot be disallowed unless the Department is able to establish that a particular material comes from the non-duty paid stream and no general presumption can be raised that the goods clearly unconditionally under an exemption notification shall be treated as non-duty paid in character. The notification referred to above is a conditional notification which exempts inter alia, unwrought aluminium in any form including ingots if manufactured from goods falling under Item 27 on which the duty of excise leviable under the Central Excise Act or the additional duty leviable under the CTA1975 as the case may be has already been paid. The onus to prove that the conditions set out in the notification have been satisfied lies upon the Department as has been held by the Tribunal in the case of Collector of Central Excise v. Kapsons Electro Stampings, reported in 1988 (37) E.L.T. 323. Assuming without admitting that M/s. Bafna Trading Company availed, of the exemption Notification 183/84 after satisfying all the conditions of the said notification, it is seen two options were available to the Bafna Trading Company:
(i) to clear the goods at nil rate of duty only when the inputs out of which the same had been manufactured have already paid the duty leviable thereon.
(ii) to clear the goods on payment of duty after availing MODVAT credit of duty paid on inputs. The inputs used by Bafna Trading Company were waste and scrap on which deemed credit of duty was available as per Government of India order dated 7-4-1986.
Obviously credit has not been utilised by Bafna Trading Company and instead they appear to have availed of the first option of clearing the goods at nil rate of duty in terms of exemption Notification 183/84.
Therefore, deemed credit was available on the waste and scrap under the provisions of the Government of India order dated 7-4-1986. In the light of the above discussion we hold that the demand covered by show cause notice dated 17-12-1987 is set aside both on limitation and on merits of the matter and the demand of Rs. 92,000/- requires to be set aside on merits. The demand of Rs. 1,61,000/- in E/58/89-NRB has been confirmed on the ground that the inputs are clearly recognisable as non-duty paid. The goods in question were cleared under an exemption notification and, therefore, cannot be treated as non-duty paid. The Tribunal has held in the Arun Auto Spring Mfg. Co. (supra) that the goods cleared after availing of exemption legitimately available to a manufacturer cannot be construed to be non-duty paid and they should be considered as goods having been legally cleared availing of the exemption. Therefore, the Department cannot deny MODVAT credit in terms.of Government of India order dated 2-11-1987. The demand in this case is set aside.
9. As a result we set aside the impugned order and allow the appeals with consequential relief if any.